Merchant Banking

Syllabus and chapter weightage

Weightages are taken from the official syllabus table published in the NISM workbook, so you can see exactly where the marks are.

Every chapter can be read free, no account needed — tap a chapter to open its plain-English Foundation lesson.

Sample questions

5 questions from the chapter tests, one per chapter. Pick your answer before you open the explanation.

1. Question 1 · Chapter 1: Introduction to the Capital Market

   In which market are securities issued to investors for the first time?

   1. A.Primary Market
   2. B.Secondary Market
   3. C.Repo Market
   4. D.Currency Market
   Show the answer

   Answer: A. Primary Market

   Primary Market is the new issue market, which provides an opportunity to issuers of securities, the Government, as well as corporations, to raise resources to meet their requirements of investments and/or discharge some obligations.

   And the first-time issue has a name: if securities are allotted to the public for the first time for the purpose of listing, it is called an Initial Public Offer (IPO).

   A later issue by the same company has a different name: if securities are already listed and the issuer company wants to issue a further class of securities to the investors again, it is called a Further Public Offer (FPO).

   Option B is where those securities go afterwards. The Secondary Market helps in providing liquidity to the securities which has already been issued in the primary market. In this market, an investor liquidates his own investments.

   And crucially: since the securities are traded on the stock exchange and the transactions are between two investors, the issuer does not come into the picture.

   The company raises money once, in the primary market. Everything after that is investors trading among themselves.

   Option C names a money market instrument. The money market is a market for financial assets that are close substitutes for money. It is typically a market for short-term funds, dealing in bankers' acceptances, negotiable certificates of deposit (CDs), repos, and Treasury Bills (T-bills), call/notice money market, and commercial paper.

   The overall structure: Capital Market is further divided into the Primary Market and Secondary Market, whereas Money Market is classified into Organized Money Market and Unorganized Money Market.

   And why any of it exists: the capital market helps in allocating the unutilized resources, i.e., transfer of funds from savers to their efficient users.

2. Question 2 · Chapter 2: Introduction to the Merchant Banking

   The merchant banker leading a public offer in India is popularly known as the:

   1. A.Lead Manager
   2. B.Underwriter
   3. C.Registrar to the issue
   4. D.Syndicate member
   Show the answer

   Answer: A. Lead Manager

   In India, the merchant banker leading a public offer is popularly known as the 'Lead Manager'.

   What that role involves: merchant banking is a fee-based service for management of public offers, popularly known as 'issue management', and for private placement of securities in the capital market.

   And it comes with duties to both sides. 'Merchant Banking', as the term suggests, is the function of intermediation in the capital market. It helps issuers to raise capital by the placement of securities issued by the issuers with investors.

   But also: the merchant banker has an onerous responsibility towards the investors who invest in such securities. The regulatory authorities require the merchant banking firms to promote quality issues, maintain integrity, and ensure compliance with the law on their own account and on behalf of the issuers as well.

   Options B, C and D name other participants in the same issue. An underwriter commits to subscribe any shortfall; a Registrar to an issue collects applications and determines the basis of allotment; a syndicate member distributes the issue.

   Why the merchant banker is indispensable: SEBI (ICDR) Regulations, 2018 require that an issuer making an issue of securities to the public or to QIBs or to its existing shareholders by way of a rights issue is required to appoint a Merchant Banker registered with SEBI.

   And its primary activity, more broadly: the primary activity of Merchant Banks is to provide fee-based advice to corporations and governments on the issue of securities.

   One thing it does not do: merchant banks differ from commercial banks in the sense that they do not take deposits from individuals or businesses.

3. Question 3 · Chapter 3: Registration, Code of Conduct & General Obligations of Merchant Bankers in India

   A merchant banker applicant must have how many persons in its employment who are professionally qualified in finance, law, accountancy or business management?

   1. A.Two
   2. B.Five
   3. C.Seven
   4. D.Ten
   Show the answer

   Answer: A. Two

   The applicant has in its employment, a minimum of two persons who are professionally qualified in finance or law or accountancy or business management from a Government recognised university or institution or who have a recognised degree in finance or law or accountancy or business management from a foreign university or institution.

   A minimum of two — and their qualification may be Indian or foreign.

   They must also be certified: the employees referred to in clause (c) and the compliance officer shall possess such certification(s) as may be specified by the Board. It is, accordingly, specified that the employees of an applicant, shall possess the certificate for NISM Series-IX: Merchant Banking Certification Examination at the time of application.

   For existing firms there are transitional deadlines: an existing employee shall obtain requisite certification within one year from effective date, i.e., on or before January 02, 2027, while the employees, who are appointed on or after January 3, 2026, shall be required to obtain requisite certification within ninety days from the date of his/her appointment.

   The other eligibility conditions: the applicant must be a body corporate including a company... or a limited liability partnership firm but not a body corporate incorporated outside India other than a foreign bank licensed by the Reserve Bank of India, a One Person Company, or a non-banking financial company.

   Plus the necessary infrastructure like adequate office space, equipment's and manpower, no adverse litigation connected with the securities market, no conviction for an offence involving moral turpitude or an economic offence, compliance with regulations 7 and 7A, and being a Fit and proper person.

   These two employees matter later too. The 0.1% shareholding bar on lead managing extends to employees referred to in clause (b) of Regulation 6 and their relatives, and so does the Regulation 26 prohibition on trading on unpublished price sensitive information.

4. Question 4 · Chapter 4: Issue Management – Important Terms

   Which of the following is a Qualified Institutional Buyer?

   1. A.All of the above
   2. B.A SEBI registered mutual fund or venture capital fund
   3. C.A SEBI registered foreign portfolio investor other than individuals, corporate bodies and family offices
   4. D.A scheduled commercial bank
   Show the answer

   Answer: A. All of the above

   All three appear in the definition.

   Qualified Institutional Buyers (QIBs) means (a) a public financial institution; (b) a scheduled commercial bank; (c) a mutual fund, venture capital fund, alternative investment fund and foreign venture capital investor registered with SEBI; (d) a foreign portfolio investor registered with SEBI, other than individuals, corporate bodies, and family offices; (e) a multilateral and bilateral development financial institution; (f) a state industrial development corporation; (g) an insurance company registered with the Insurance Regulatory and Development Authority of India (IRDAI); (h) a provident fund with minimum corpus of Rs. 25 crores; (i) a pension fund with minimum corpus of Rs. 25 crores; (i) National Investment Fund; (k) insurance funds set up and managed by army, navy or air force of the Union of India; (l) insurance funds set up and managed by the Department of Posts, India (m) systemically important non-banking financial companies.

   Note the qualification inside limb (d). An FPI is a QIB other than individuals, corporate bodies, and family offices — so not every FPI qualifies.

   And the Rs. 25 crore corpus applies to both provident funds and pension funds.

   Why the category matters. A QIP is an issue to Qualified Institutional Buyers only, an anchor investor must be a qualified institutional buyer above the size threshold, and QIBs face a bidding restriction: the qualified institutional buyers and the non-institutional investors shall neither withdraw nor lower the size of their bids at any stage.

   Anyone outside both the QIB list and the retail limit is an NII: investors who do not fall within the definition of the above two categories are categorized as "Non-Institutional Investors".

5. Question 5 · Chapter 5: Issue Management – Process and Underwriting

   Which activities does the merchant banker perform in the issue management process?

   1. A.All of the above
   2. B.Handles the statutory compliance requirements
   3. C.Acts as event manager
   4. D.Handles the investors' interest in fiduciary capacity
   Show the answer

   Answer: A. All of the above

   All three appear in the workbook's description of the role.

   In the overall process of issue management, the merchant banker plays a variety of important roles such as, an expert advisor to the management of the issuer company, who performs due diligence on the company, as an event manager and coordinator to ensure timely completion of the issue, as a watch dog for the statutory compliance and as a person in fiduciary capacity for protection of the interests of the investors.

   And a fifth role: at the time of an issue, it also acts as an interface between the issuer company and the SEBI.

   Underlying all of them: merchant bankers are also expected to guard against conflict of interest at every stage.

   The role is statutorily protected. In India, the Merchant Bankers registered with SEBI have been provided with statutory exclusivity in managing the public offers such as IPOs, rights, FPOs and secondary issues.

   The fiduciary aspect is the one that shapes the code of conduct. As Chapter 3 put it, a merchant banker shall make all efforts to protect the interests of investors and shall at all times exercise due diligence, ensure proper care and exercise independent professional judgment.

   The watchdog role runs through the whole chapter — filing the draft offer document, issuing due diligence certificates at each stage, ensuring the promoters' contribution certificate is filed before the issue opens, and reporting to SEBI any act of omission or commission on the part of any of the intermediaries.

   And the event manager role does not end at closure. The lead manager shall continue to be responsible for post-issue activities till the applicants have received the securities certificates, credit to their demat account or refund of application monies and the listing agreement is entered into by the issuer with the stock exchange and listing or trading permission is obtained.

Frequently asked questions

What is the passing mark for NISM Series IX?

You need 60% to pass NISM-Series-IX: Merchant Banking. On a 100-mark paper that is 60 marks.

Is there negative marking in NISM Series IX?

There is negative marking of 25% of the marks for that question, so a wrong answer costs you 0.25 marks on a 1-mark question. Guess only when you can eliminate at least two options.

How long is the NISM Series IX exam?

The exam runs for 120 minutes and carries 100 marks in total.

How long is the NISM Series IX certificate valid?

NISM certifications are generally valid for 3 years from the date of passing, after which they must be renewed. Confirm the current position on nism.ac.in before your certificate lapses.